Wells Fargo’s $10 Million Monthly Mistake: How Millennials Leveraged a Rewards Card

🌈 Abstract

The article discusses how the co-branded credit card partnership between Wells Fargo and Bilt, a rent rewards startup, has turned into a runaway success for Bilt and a money-loser for Wells Fargo. It examines the three main ways banks make money from credit cards (interest, fees, and interchange fees), how co-branded rewards cards work, and how financially savvy Millennials are using simple strategies to maximize the benefits of the Bilt card, costing Wells Fargo up to $120 million a year.

🙋 Q&A

[01] How Banks Make Money from Credit Cards

1. What are the three main ways banks make money from credit cards?

• Interest: Banks charge high interest rates, averaging 22.8% in 2023, on credit card balances, netting them over $25 billion in additional interest fees.
• Fees: Banks charge a variety of fees, such as late payment fees, over-the-limit fees, and other creative charges, to squeeze money from card users.
• Interchange fees: Banks charge businesses 1-3% of every purchase made with a credit card, and some businesses pass these fees on to customers.

2. How do co-branded rewards cards work?

• Co-branded cards give a brand's loyal customers an opportunity to carry a piece of that brand in their wallet.
• Banks love co-branded partnerships because they get access to the brand's customers, and they routinely pay their partners generous cash payouts for every customer signed up.
• Brands can offer perks to their card users that cost them little yet seem highly valuable to their members.

[02] The Bilt-Wells Fargo Partnership

1. What were Wells Fargo's strategic assumptions in partnering with Bilt?

• Wells Fargo assumed Millennial customers would be financially naive and spend recklessly on the card.
• Wells Fargo hoped renters would eventually become home buyers and take out mortgages with them.
• Wells Fargo counted on making money from interest, fees, and interchange fees from the Bilt card.

2. How are Millennials using simple strategies to beat Wells Fargo at their own game?

• Millennials are paying their rent in full each month to avoid interest charges.
• They are maximizing the rewards points by taking advantage of Bilt's bonus points on rent, travel, and dining.
• They are not becoming home buyers through Wells Fargo, as the bank had hoped.

3. What has been the impact of the Bilt-Wells Fargo partnership?

• Bilt's value has skyrocketed by over 300%, from $1.5 to $3.1 billion, making its CEO a first-time billionaire.
• Wells Fargo is losing up to $10 million per month on the partnership, despite acquiring valuable young customers.
• Wells Fargo invested over $20 million in Bilt in 2021, so they may yet see a return on that investment as Bilt's value has increased.